The year 2023 has been full of positive news and strong narratives for the crypto market. Unlike the previous year, which was plagued by negative events, this year started off with a positive sentiment and witnessed growth along with important events and developments.
Although there were some negative aspects, they were overshadowed by the overall bullish momentum of the market. While there was no euphoria, the year was marked by optimism. Now, let’s analyze the main narratives of the past year, draw conclusions, and make some predictions for the upcoming year.
The Year When Airdrops Became Great
One of the strongest and most enduring trends of 2023 was the airdrops craze. Although the concept of airdrops has been around for a while, in 2023 it became more popular for hunting early-stage projects in hopes of receiving free tokens. This trend has also shown signs of becoming sustainable and is expected to continue for years to come.
The trend began with the Blur airdrop to traders on the NFT marketplace. However, the real momentum was started by the Arbitrum airdrop, which became the largest airdrops of the year. Nearly $2 billion was distributed among thousands of users who conducted transactions on the network.
The interest in retrodrops remains strong. Fair users and sybil accounts continue to make thousands of transactions daily in projects like LayerZero, zkSync, and others. Additionally, new projects and drop distribution models are emerging.
Paradigm has started a trend with friend.tech and Blast, introducing the use of “points” system for rewards. Users earn airdrop points by making regular transactions, inviting friends, and increasing the TVL (Total Value Locked) of the project. This allows them to move up in the ranking tables and receive a fairer distribution of drops. However, this model does have some drawbacks. It is likely that clever users will find ways to cheat the scoring system.
Bitcoin ETF, the Trigger of a Bull Run
Around the middle of the year, a highly significant event occurred that had a profound impact on the crypto market. BlackRock, the world’s largest asset manager, filed an application with the SEC to establish a first spot Bitcoin exchange-traded fund (ETF).
This event played a crucial role in the market’s recovery. Any news related to the pending approval or delay had a strong and immediate effect on the market. In addition to the impressive growth of Bitcoin, which has gained approximately 160% this year, the Grayscale Bitcoin Trust, one of the first exchange-traded products backed by physical Bitcoin, has showed notable performance.
Currently, potential approval could occur before January 10, 2024. In anticipation of this event, the market may experience another rally.
We have provided in-depth information on the prerequisites and potential outcomes in our article, The Anticipated Approval of a Spot Bitcoin ETF: A Catalyst for Bull Run.
AI Tokens: A New Opportunity
In late 2022, the world witnessed the launch of ChatGPT, a technology that is poised to become the most significant development of this decade, and perhaps even of the entire century. However, what truly matters to us is the impact of this event on the crypto market.
With the remarkable success of ChatGPT, existing AI projects have experienced significant growth. This surge in AI projects demonstrates the market’s potential for continued expansion. It is worth noting that November and December 2022 were particularly challenging months with low volatility due to the collapse of FTX.
In the aftermath of ChatGPT’s launch, numerous similar projects have emerged, utilizing the OpenAI API. This has stimulated the development of a new sector of crypto projects that offer services using AI.
The crypto industry will undoubtedly continue to develop in the field of artificial intelligence. Throughout this year, there have been numerous significant funding rounds involving well-known backers.
Blockchains Craze
Over the past year, there has been a recurring trend in blockchain technology. Following the success of Optimism and Arbitrum, the focus has shifted to creating new Layer 2 blockchains. This year, we have witnessed the launch of several successful blockchains, as well as a few unsuccessful ones. Many more are currently in the pipeline and planning to launch next year.
With Ethereum’s transition to Proof of Stake, Layer 2 solutions have become even more relevant. The focus for developers has shifted from building applications to building the networks that will serve as the foundation for the next bull run. Currently zero-knowledge and optimistic rollups dominate the Layer 2 ecosystem, but many changes may come in the following year.
In terms of Layer 1 blockchains, Solana emerged as a major leader by the end of the year. The network experienced growth driven by significant airdrops and the popularity of memecoins. However, competition for users remains fierce, and non-EVM chains are the first to be affected. Despite the market growth and increased on-chain activity, the number of users remains relatively low, and new users are hesitant to enter the crypto space.
Bitcoin Ordinals, BRC-20, and Memecoins
Bitcoin’s successes extend beyond the potential approval of a Bitcoin ETF. This year has seen significant advancements in alternative uses of the Bitcoin blockchain. Early in the year, Ordinals was launched, followed by the emergence of the BRC-20 standard.
As the foundational blockchain in the world of cryptocurrencies, Bitcoin holds substantial influence and boasts a large user base. Despite being less performant compared to NFTs on Ethereum and other networks, Ordinals quickly found its niche.
BRC-20 tokens, on the other hand, emerged unexpectedly but gained traction rapidly. These tokens are a type of cryptocurrency token created by inscribing data onto Bitcoin’s satoshis using JSON inscriptions. This approach ensures immutability and leverages Bitcoin’s security and network. Unlike traditional tokens on other blockchains, BRC-20 tokens are minted within the Bitcoin community and have a capped total supply. This unique combination offers a distinctive blend of token characteristics and Bitcoin’s robust infrastructure.
You can learn more about the development of NFT and DeFi on Bitcoin in our recent research: The Rise of DeFi and NFTs on the Bitcoin Blockchain.
As is often the case before bull runs, memecoins are the first to rise. In 2023, it all started with memecoins dedicated to AI. Then we have seen a rise of new-wave memecoins on Ethereum: $PEPE, $BITCOIN, $LADYS and others. Next, BRC-20 projects joined the trend. Then, the memecoin trend spread to projects on Solana. Bonk, the largest memecoin on Solana, became the third largest memecoin by market capitalization, following Dogecoin and Shiba Inu. Trading memecoins on Solana remains highly popular at the time of writing. However, it is difficult to predict what will happen next. Hopefully, Solana will no longer encounter the same problems as before.
The strong popularity of memecoins arises during periods of low volatility in the trading of main cryptocurrencies such as BTC and ETH. This may indicate that traders are becoming bored with sideways trading and airdrop farming, and are being drawn to new high-yield opportunities. It is fair to say that memecoin trading is not easy and requires both skill and luck, so this trend is unlikely to attract new money into web3 and particularly DeFi.
Decentralized Social Apps
One of the significant developments of 2023 was SocialFi. It began with the launch of the Base blockchain in August, and one of its earliest and most popular dApps was friend.tech. The success of this project can be attributed to several factors:
- Base’s effective marketing and popularity among drophunters
- Integration with Twitter, the leading social network in the crypto market
- A fresh concept that offers earning opportunities for traders
- Perhaps one of the most crucial factors was the airdrop announcement.
The successful concept was quickly adopted by other blockchains, but they are not as large-scale as friend.tech. Currently, the future of friend.tech and similar projects is uncertain, as there has been a significant decrease in activity within the application and a further decline in popularity on social networks.
It’s important to mention that there were already some SocialFi projects, like Lens Protocol, prior to this. However, they never achieved the desired level of popularity.
Justice for Crypto
The past year witnessed several notable events, such as the collapse of FTX, Terra, and the bankruptcy of several other crypto companies. The bankruptcy proceedings are expected to be lengthy, similar to the case of Mt. Gox, which took 10 years to start compensating creditors. However, amidst these events, there were also significant instances of justice being served.
In the fraud trial of Sam Bankman-Fried, the founder of FTX, he was found guilty of wire fraud, conspiracy to commit fraud, commodities fraud, and money laundering. The jury determined that he had stolen at least $10 billion from customers and investors. SBF is scheduled for a sentencing hearing on March 28, 2024. While the penalties for his charges could potentially result in a cumulative sentence of 110 years, the final duration will be determined during the hearing.
Another significant development was the apprehension of Do Kwon, the founder of Terra, who was responsible for one of the major collapses in 2022. In February 2023, the U.S. Securities and Exchange Commission (SEC) charged Kwon and Terraform Labs with securities fraud. As of December 2023, Kwon is required to remain in Montenegrin custody for at least two more months, following extradition requests from the United States and South Korea.
Furthermore, former CEO of the now-bankrupt cryptocurrency lending platform Celsius Network, Alex Mashinsky, was arrested by U.S. authorities on fraud charges.
These are just a few examples of the developments involving crypto fraudsters in 2023. While their victims are finally seeing some justice, it is important to remain cautious and conduct thorough research.
Another significant event is that Ripple Labs, the company associated with XRP, achieved a major legal victory in its ongoing lawsuit with the U.S. Securities and Exchange Commission (SEC). This win is crucial as it establishes that XRP tokens are not considered securities, affecting both Ripple’s operations and the wider cryptocurrency market.
What We Expect in 2024?
December is typically a time for making predictions. So, here are our three predictions for the upcoming year.
RWA and TradFi Integration
With the potential approval of Bitcoin and Ethereum spot ETFs, the interest of Traditional Finance (TradFi) in the crypto market is expected to increase. This is not surprising, as TradFi is always looking for new tools to offer their clients and generate income.
Real World Assets (RWAs) projects, which are already integrating traditional financial assets into the crypto market, can play a crucial role in this transition. As TradFi companies express interest, we will witness a mutual integration of crypto and traditional finance, leading to further growth in the number of RWA assets in the crypto world.
For more information on recent developments and the outlook for RWAs, please refer to our research.
Last Year of Free Crypto Market
With the entry of traditional financial companies into the crypto market and increased regulation, the landscape may change forever. Many countries are now creating regulatory frameworks for the circulation of cryptocurrencies. Together with the launch of the CBDC, the crypto market will be less free and more similar to traditional money markets. It will probably be more convenient and safe for new users. But for OG web3 users it will be a very sad change.
Cryptocurrency is gradually shifting towards censorship and transparency. Hackers are finding it increasingly difficult to hide and launder the proceeds of exploits, and average users may face challenges when it comes to taxes on income they didn’t even intend to receive (such as airdrops). These changes are inevitable, and we will need to adapt to them.
More Building, But With Focus on User Acquisition
Building in the crypto industry continues even during bear markets. Last year, we witnessed the emergence of new technologies, particularly blockchain, as mentioned earlier. This year has also seen significant advancements in blockchain technology, such as zero knowledge proofs, modular blockchains, and account abstraction.
These technologies have the potential to drive the next wave of crypto adoption. Hence, it is crucial for developers to exert their best efforts in creating useful and user-friendly decentralized applications (dapps) and blockchains. Moreover, the influx of new web2 users is expected to be larger during the upcoming bull run. Therefore, it is essential for the entire crypto industry to retain these users. Fortunately, despite their external complexity, these new technologies can assist in achieving this goal.
The Bottom Line
In the first part of our Annual Recap, we discussed the main narratives and events that occurred in 2023. The year was characterized by a mix of optimism and surprises, but also had its share of negativity. Moreover, it brought significant changes to the cryptocurrency landscape. Currently, it appears that we are in a pre-bull market stage, meaning that any developments in the crypto space at this moment will be crucial. Keep an eye out for the second part of our Annual Recap, where we will analyze key market data and performance of different projects.
